Sep. 7, 2012

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During 14 years of running the day-to-day operations of the Michigan Veterans of Foreign Wars, Rob Weiss never figured out how to distance the VFW from what he says is the "necessary evil" of a fundraising deal with a Florida telemarketer.

The uncomfortable reality of the partnership was driven home every time a potential donor asked Weiss how the veterans group and its telemarketer divided donations.

"The ones that have called me up and asked me on the phone won't give when I tell them what that split was," he said, "even when it was 20 percent, and now we're looking at it not even being really 20 percent.

"They (donors) think the lion's share of it is coming to the charity. That's what they want."

But it's not what they get.

The VFW's share was 9.4 percent in 2010, the most recently reported year. The lion's share goes to Xentel Inc., a Canadian corporation with U.S. operations based in Fort Lauderdale, Fla.

Financial disclosure documents filed with the Attorney General's Office show Xentel Inc., raised $1,047,563 on behalf of the state VFW. Of that, $1,027,563 went toward Xentel's expenses, leaving the VFW with $20,000.

That's all the cash the VFW received, said Weiss, 65, a Vietnam veteran serving as the VFW's state adjutant and quartermaster in Lansing. But he said Xentel's expenses included the production, printing and mailing of the VFW's quarterly newspaper and an advertising book for the annual state convention. He said those costs totaled $77,861.

The VFW would bear the expense if its staff retained responsibility for the publications. But even if that revenue was shifted to the VFW, its share of donations still would be less than a dime on the dollar.

The bulk of donations meant to help veterans returning from Afghanistan and Iraq and those who returned earlier from Europe, the Pacific, North Africa, Korea and Vietnam end up paying the tab for the Florida fundraiser's rent, utilities, salaries and sales commissions.

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Fundraising needed

Weiss said the state VFW needs every dollar from every source to support veterans and the kids and families residing at the organization's National Home for Children in Eaton Rapids.

Membership dues remain an important revenue stream, but Michigan's VFW membership has fallen from 88,000 to 56,000 in Weiss' 14 years.

He's given up for now trying to obtain grants from wealthy foundations, saying most are limited to helping nonprofits operating as 501(c)(3)'s. The VFW operates as a 501(c)(19).

Telemarketing comes with a steep price, Weiss admitted. He expects to retire next month without having been able to find anything better.

"We talked about doing it ourselves, but startup cost was over $100,000," Weiss said. "We were going to just hire disabled veterans to come in here and man the phones. But then you're talking about a lot of money going out to equipment and so on. ...

"I'm not a big fan of telemarketing myself. It's one of these necessary evils you have to deal with. To be honest with you, I'd rather find another way to do this thing but right now, how do you do that without doing an initial outlay that's going to break the bank?"

Telemarketers have databases and "they've been doing this stuff for a long time," Weiss said. "So, they know people who are willing to donate to different organizations. If you try to do something like this yourself, you're starting from scratch.

"We gave up on that idea and let the professional fundraisers do it for us."

Xentel restructuring

Weiss said the VFW's arrangement with Xentel was in place when he began working for the veterans' organization in the late 1990s. He said he sees Xentel executives once a year at the VFW's annual convention.

The telemarketing firm presents Weiss with a summary of each year's fundraising expenses, listed under broad categories such as call center overhead, corporate overhead, weekly payroll, telephone and "sub commissions."

Xentel subcontractors Directele of Madison Heights and Capitol Communications of Livonia earn 75 percent to 80 percent of the revenue their calls generate, according to contracts on file at the state Attorney General's Office. After Weiss signs the report, Xentel sends it to the attorney general. He doesn't ask Xentel to substantiate its costs or provide greater detail.

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"I really don't know their actual costs," Weiss said. "When we look at stuff like that, it's not broken down like you would take my budget and you could break it right down to the penny, where it all goes."

Xentel executives claim their net profit "is down around 5 or 6 percent," Weiss said. "The people that do the professional fundraising on this have expenses."

Earlier this month, Xentel's corporate parent, iMarketing Solutions Group of Calgary, Alberta, reported a $5.2 million loss on sales of $83.7 million in its 2011 financial statement.

Michael Platz resigned as co-CEO in August and as chairman in January. The company is undergoing a restructuring, according to the annual financial statement.

An email request for comment from the Xentel executive who serves as Weiss' contact was not acknowledged.

No national policy

The national VFW does not have a policy about the use of telemarketing firms by state VFW departments or posts, according to Jerry Newberry, director of communications in the Kansas City, Mo., headquarters.

However, "in everything we do, we remind all of our posts and departments to be cognizant of the way the VFW is presented," Newberry said. "They have the ability to sign their own contracts. And those decisions are made through their governing bodies. The contracts are reviewed and approved or declined accordingly."

Weiss and various VFW state commanders, a position that rotates annually, have co-signed contracts with Xentel through the years. Weiss signs the annual financial reports submitted to the attorney general. He and the organization's CPA sign the annual IRS Form 990, the nonprofit equivalent of a 1040.

The Michigan VFW has a committee whose members are responsible for oversight of its financial statements, but no review of the annual Form 990 was conducted, according to the document.

The VFW's 990s for 2008, 2009 and 2010 listed zero professional fundraising expenses and "No" was checked each year in response to the Internal Revenue Service question asking if the organization had more than $15,000 in expenses for professional fundraising services.

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IRS instructions for Form 990 are explicit in requiring disclosure, including bold emphasis about professional fundraising:

"Report gross amounts of contributions collected in the organization's name by fundraiser. ... The organization must enter ... fees for professional fundraising services relating to the gross amounts of contributions collected in the organization's name by professional fundraisers."

Weiss said the VFW reports the $20,000 cash it receives, but doesn't report the $1 million in gross revenue "because we don't have to."

"We don't show that (revenue) because we never see it," he said. "I basically read a lot of the rules and stuff on this. I never even looked at the telemarketers as far as us having to disclose the whole thing."

Sticking to script

Overall, Weiss said he is satisfied with Xentel's responses to his occasional concerns, most of which involve caller-donor relations.

Two weeks ago, he contacted Xentel to reiterate that its telemarketers "are not to go off script" when calling potential donors around Michigan.

Weiss often receives feedback from people who were called. Sometimes, they have questions about the funds splits. Sometimes, they're upset by the telemarketers' tones. Sometimes, they just want Weiss to clarify the callers' claims.

This time, callers were telling potential donors the VFW was raising funds for the Veterans Administration. "We don't raise funds for the VA," Weiss said. "That's the kind of thing that irritates the heck out of me.

"We've had some people fired over there (at Xentel or its subcontractors) 'cause I tell them we're not going to tolerate this stuff and we're not going to tolerate people being rude to anybody either. If you can't take a 'no,' then you don't need to be in there. We've had it, too, where some of them swore at somebody."

Penalties assessed

Nationally, Xentel's telemarketing activities have attracted investigations and penalties for several years.

Since 2002, Xentel has been disciplined in Colorado, Ohio, Tennessee, South Carolina, Iowa and three times in Pennsylvania for a variety of violations of those states' charitable solicitation laws.

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Six months ago, the company was fined $720,000 in Tennessee for failing to disclose its status as a professional fundraiser in phone calls requesting donations.

Investigators documented 144 cases in a six-week period.

"It is clear that Xentel, in the vast majority of those calls, attempted to lead those who were called to believe that the solicitation was being done by the charity itself, rather than by a professional fundraiser," said Todd Kelley, whose Division of Charitable Solicitations office recommend people ask questions when telemarketers call.

"Potential donors have a right to ask how much of the money they donate will go to the charitable organization and how much will go the professional fundraiser," his office advised consumers.

That scenario is all-too-familiar to Weiss.

"I wish there was a simple answer out there to find a way people would come right in and donate right directly to the organizations," he said. "Unfortunately that's one of those things that cost a lot of money.

"Till we can figure something out to solicit people without it costing us a bunch of money, we're kind of stuck with what we've got."

10 years of telemarketing violations

Xentel penalized for misleading practices; fines exceed $1.4M

Government agencies that monitor professional fundraising organizations have accused Xentel, which conducts telemarketing for the Michigan VFW, of violating charitable solicitation laws in six states and Canada in the last 10 years. Enforcement actions include:

March 7, 2012: Fined $1,000 by the Pennsylvania Bureau of Charitable Organizations for engaging in fraudulent conduct by falsely claiming a consumer had pledged during a telephone solicitation to make a $20 donation.

Nov. 15, 2011: Fined $720,000 by the Tennessee Charitable Solicitations Division for failing to properly disclose its status as a professional fundraiser in telephone calls prior to requesting donations. Investigators documented 144 cases in a six-week period.

Dec. 17, 2010: Fined $500,000 by the Canadian Radio-television and Telecommunications Commission for calling consumers who had registered their numbers on the National Do Not Call List. Xentel also promoted events on its own behalf or on the behalf of organizations that were not registered as charities with the Canada Revenue Agency.

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Oct. 6, 2010: Fined $20,000 by Pennsylvania Bureau of Charitable Organizations for employing 27 people who had been convicted of felonies or misdemeanors involving dishonesty. Twenty of the employees had lied on their employment applications. Four others who disclosed their convictions were hired anyhow.

March 21, 2008: Fined $100,000 and permanently enjoined from violating terms of the Colorado Charitable Solicitations Act related to giving notice of plans to conduct a solicitation campaign and filing financial reports.

Aug. 16, 2007: Accused by the attorney general of Ohio of failing to reimburse charities the funds promised in their contracts, of failing to disclose to consumers the percentage received from donations, of missing 12 filing deadlines and of filing false or misleading information concerning its solicitation ability in other states.

May 3, 2006: Fined $100,000 and banned from contacting consumers in South Carolina on behalf of two public safety organizations until 2009 for failing to disclose that the caller was a paid solicitor and misrepresenting how collected funds would be spent.

Nov. 19, 2004: Fined $30,000 by the attorney general of Iowa for abusive and misleading practices in its professional fundraising calls and solicitations."Xentel is prohibited from implying their telemarketers are firefighters or misrepresenting that money will be used locally," said Attorney General Tom Miller.

December 2002: Fined $6,000 and ordered to pay $14,000 restitution by the Pennsylvania attorney general for using false and misleading tactics during a three-year telemarketing campaign for firefighters.